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business dispositions. In the first quarter of 2014, the corporate office implemented a Separation Incentive
Program that resulted in early retirement program expense of $4.5 million, which was funded from the assets of
the Company’s pension plan. In the third quarter of 2014, the acceptance period for the Voluntary Retirement
Incentive Program (VRIP) ended and the Company recorded $10.3 million in early retirement program expense
and other related charges, a portion of which was funded from the assets of the Company’s pension plan.
Excluding early retirement program expense, the total pension credit for the Company’s traditional defined
benefit plan was $91.2 million and $42.7 million for 2014 and 2013, respectively.
Excluding the pension credit, early retirement program expense and other related charges, corporate office
expenses increased in 2014 due to higher compensation costs, expenses related to acquisitions, the Berkshire
exchange transaction and the cable spin-off, and incremental costs associated with the corporate office
headquarters move to Arlington, VA.
Equity in Earnings of Affiliates. At September 30, 2014, the Company held a 16.5% interest in Classified
Ventures, LLC (CV) and interests in several other affiliates. On October 1, 2014, the Company and the remaining
partners in CV completed the sale of their entire stakes in CV. Total proceeds to the Company, net of transaction
costs, were $408.5 million, of which $16.5 million will be held in escrow until October 1, 2015. The Company
recorded a pre-tax non-operating gain of $396.6 million in connection with the sale in the fourth quarter of 2014.
The Company’s equity in earnings of affiliates, net, for 2014 was $100.4 million, compared to $13.2 million in
2013. The 2014 results include a pre-tax gain of $90.9 million from the CV sale of apartments.com in the second
quarter of 2014.
Other Non-Operating Income (Expense). The Company recorded other non-operating income, net, of $778.0
million in 2014, compared to expense of $23.8 million in 2013.
The 2014 non-operating income, net, included a fourth quarter pre-tax gain of $396.6 million on the sale of CV,
the pre-tax gain of $266.7 million in connection with the Company’s exchange of Berkshire shares, a pre-tax gain
of $127.7 million on the sale of the headquarters building, $11.1 million in unrealized foreign currency losses
and other items. The 2013 non-operating expense, net, included a $10.4 million write-down of a marketable
equity security, $13.4 million in unrealized foreign currency losses and other items.
Net Interest Expense. The Company incurred net interest expense of $33.4 million in 2014, compared to $33.7
million in 2013. At December 31, 2014, the Company had $445.9 million in borrowings outstanding at an
average interest rate of 7.1%; at December 31, 2013, the Company had $450.8 million in borrowings outstanding
at an average interest rate of 7.0%.
Provision for Income Taxes. The effective tax rate for income from continuing operations in 2014 was 29.0%.
The lower effective tax rate in 2014 largely relates to the Berkshire exchange transaction. The pre-tax gain of
$266.7 million related to the disposition of the Berkshire shares was not subject to income tax as the exchange
qualifies as a tax-free transaction.
The effective tax rate for income from continuing operations in 2013 was 38.5%. This effective tax rate benefited
from lower state taxes and lower rates in jurisdictions outside the United States, offset by $4.6 million in net state
and non-U.S. valuation allowances provided against deferred income tax benefits where realization is doubtful.
Discontinued Operations. On July 1, 2015, the Company completed the spin-off of Cable ONE as an
independent, publicly traded company.
On June 30, 2014, the Company and Berkshire Hathaway Inc. completed the Berkshire exchange transaction. A
gain of $375.0 million was recorded in discontinued operations in connection with the disposition of WPLG, a
Miami-based television station. This gain is not subject to income tax.
57 GRAHAM HOLDINGS COMPANY